PERT recommendation on pensions flawed

My purpose is to address misinformation presented in the report of the Premier’s Economic Recovery Team (PERT) regarding the Teachers’ Pension Plan (TPP).

I wish to allay any concerns of pension plan members and the public, and encourage the government to dismiss the PERT recommendation — “Pensions to be converted to a collective defined contribution plan in three years” — as an economically ill-advised and impractical idea which would not provide any financial relief.

The PERT report incorrectly states the Teachers’ Pension Plan (TPP) ratio of fund assets to accrued obligation is 0.509 with an unfunded liability of $1.6B. As of Dec. 31, 2020, the TPP has a funded ratio of 1.149 with a surplus of $774M. (Source: Dec. 31, 2020, audited financial statements of the TPP and annual report of the Teachers’ Pension Plan Corp.)

The PERT report is misleading when it states the pension plans’ unfunded liability is more than before pension plan reform of the TPP and the Public Service Pension Plan (PSPP) in 2016.

Pension reform of the TPP reduced government’s financial obligation to the TPP and the PSPP, and reduced government’s debt. In the case of the TPP, when the pension reform process began in 2012, the funded pension ratio was 52.5 per cent, the un-funded liability of the TPP was $2.1B (source: 2012 TPP actuarial valuation), and this liability was forecast to increase.

NEW ARRANGEMENT

Government was the sole sponsor of the TPP and responsible for 100 per cent of this liability and any future liability. As a result of the pension reform agreements finalized in 2015-16, the NLTA became a joint sponsor and takes responsibility for 50 per cent of any future unfunded liability. Pension administration and investment occurs through the independent Teachers’ Pension Plan Corp. created through pension reform, which enabled a reduction in government employees. Government’s pension obligation has been reduced.

The PERT report incorrectly states further action is required to make the cost of the TPP and the PSPP sustainable.

The TPP (and the PSPP) are now well managed by pension experts, both plans are sustainable, currently fully funded, and have funding policies that have a mechanism for correcting any future unfunded liability due to unforeseen negative events.

The PERT report incorrectly states a declining population with fewer public servants and fewer members paying into the plans will translate into unfunded liability, put plan members at risk and make the plans unsustainable.

If there are less people paying in, then there is less future pension obligation accruing — the two factors largely offset each other. There are sufficient assets to pay the pensions for all existing pensioners and obligations to active teacher plan members currently paying premiums. The TPP is sustainable for the indefinite future with $6B in assets.

The PERT report incorrectly refers to government’s debt to the TPP as unfunded pension liability

The Teachers’ Pension Plan Corp. holds a $1.6B promissory note issued by government in 2016 to pay primarily for the pre-reform obligations government had accrued to already retired teachers when it was the sole sponsor and trustee. This is an enforceable financial instrument similar to any bond or debt held by any of the province’s creditors.

The PERT report recommendation that, “Pensions to be converted to a collective defined contribution plan in three years” is an extreme, and unrealistic suggestion which does not logically flow from the discussion in the report, and more importantly, does not provide any financial relief or reduce government’s current pension obligation.

Converting the TPP to a defined benefit plan would not alleviate the province’s promissory note held by the Teachers’ Pension Plan Corp.

The note must be paid regardless of whether there is a move to a future defined contribution plan or not, unless government intends to renege on its debt, or arbitrarily reduce the pension of already retired teachers, which they are not legally able to do.

Government cannot just wish away the promissory note and simply does not have the ability, through legislation or otherwise, to arbitrarily change the TPP for already retired teachers.

A recommendation that should be given serious consideration is that government consider beginning a process to reform the remaining defined benefit pension plans it sponsors which have not undergone pension reform, including the MHA pension plan.

Reform similar to that which occurred with the TPP and the PSPP would undoubtedly result in reducing government’s financial pension liability. Don Ash Teacher’s Pension Plan retiree St. John’s